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Subendranathen v Independent State of Papua New Guinea [2004] PGNC 118; N2665 (5 October 2004)

N2665

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS. 201 OF 1997

BETWEEN:

VISVANTHAN SUBENDRANATHEN
Plaintiff

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Defendant

WAIGANI: GAVARA-NANU. J
2003: 30th June
2004: 05th October

CONTRACT - Breach of contract – Damages claimed must flow from the terms of the contract.

DAMAGES – Default judgment – Assessment of damages – Plaintiff must prove damages – Court has the discretion to reject claims which have no proper basis.

GRATUITY – Income Tax Act, 1959, ss. 65CB and 65CD – Gratuity cannot exceed 25% of fully taxed salary or wages – If gratuity which has been paid under a contract exceeds 25%, the excess amount paid in gratuity is to be treated as salary or wages – Where gratuity has not been paid, the gratuity to be paid cannot exceed 25% of fully taxed salary or wages even if the contract or agreement may provide for gratuity in excess of 25% of fully taxed salary or wages.

Cases cited:
Keith Reid -v- Murray Hallam & Allcad Ltd - N1337.
K L Engineering & Constructions (PNG) Limited -v- Damansara Forest Products (PNG) Limited & Others – N2250.

Counsel:
Plaintiff in person.
H. Kiele for the defendant.

GAVARA-NANU. J: The plaintiff and the defendant entered into an Agreement on 21st February, 1994, for the plaintiff to provide consultancy services to the defendant.

The Agreement was for four years commencing on 1st March, 1993 and ending on 28th February, 1997.

Under the Agreement, the plaintiff was to provide advice on anti-corruption. He was also responsible for all special projects, which included investigations into fraudulent financial dealings, including misappropriation of public funds, and other projects as determined or specified from time to time by the Secretary for the Department of Prime Minister and the National Executive Council or his delegate not below the level of Deputy Secretary.

The plaintiff provided consultancy services to the defendant until 7th March, 1995, when the Secretary for the Department of Prime Minister in a letter dated, the same date, terminated the Agreement.

In the termination letter, the Secretary gave reasons for the termination as non performance and breach of contract. The termination was made effective immediately.

Clause 11 provided for termination of the contract, and the plaintiff’s termination was effected under Clause 11.4, which is in these terms:

11.4 The Minister or Secretary may terminate this Agreement at any time during the currency for same without affording any reasons thereof.

Upon termination under Clause 11.4, the plaintiff was entitle to be paid for the balance of his contract period as provided under Clause 11.5, which is in these terms:

11.5 In the event that the Minister or the Secretary terminates this Agreement in accordance with the sub-clause (4) hereof, then and in that event the Consultant will be entitled to receive, and the State shall pay to the Consultant the full benefits which could otherwise be payable to the Consultant pursuant to this Agreement, for the un-expired duration of the Agreement.

The issue of liability does not arise here because this matter comes to me after the Supreme Court found that the defendant is liable and directed that the matter be tried in the National Court for assessment of damages.

I am therefore only determining damages for the plaintiff.

The defendant has argued that the plaintiff is not entitled to claim any damages because he has been paid all his entitlements upon termination. The defendant has also argued that the plaintiff is not entitled to claim damages because under Clause 11.4, the plaintiff could only claim damages if the Secretary had not given the reasons for termination. In this case the Secretary gave reasons for termination.

Alternatively, the defendant argued that, if the plaintiff is entitled to damages, then it should be paid for only three months in lieu of notice.

It is not in dispute that the plaintiff was terminated under Clause 11.4 of the Agreement. For that reason, it follows that the plaintiff is entitled to claim for the un-expired period of the Agreement as provided under clause 11.5.

I reject the argument by the defendant that the plaintiff is only entitled to claim for three months in lieu of notice, for the reason that there is no provision in the Agreement that the plaintiff was to be given three months notice on termination. Clause 11.5 specifically says that the plaintiff is to be paid for the remaining part of his Agreement.

I also reject the defendant’s argument that, because the Secretary had given his reasons for terminating the Agreement, the plaintiff cannot claim damages. The important word in Clause 11.4 is ‘may’. This means the Secretary was at liberty to give reasons for termination as he had done or not give any reasons at all. But, still either way, it would not relieve the defendant from complying with Clause 11.5 and pay the plaintiff his entitlements for the balance of the Agreement.

I will therefore determine the plaintiff’s damages for the balance of the Agreement.

Let me at this stage indicate that, I also reject the plaintiff’s claim that the awards should be made at the rate of PNG Kina at the time of his termination, for the reason that there is no such provision in the Agreement. The plaintiff’s damages must flow from the terms of the Agreement. See Keith Reid -v- Murray Hallam & Allcad Ltd – N1337. See also K L Engineering & Constructions (PNG) Limited -v- Damansara Forest Products (PNG) Limited & Others – N2250.

I also reject the plaintiff’s claim that it should be awarded damages equivalent to the amount he would have earned had he been paid the money earlier and invested the money in treasury bills. I do so, on the basis that it is speculative.

I will therefore determine each head of claim on the basis of the rates of salary and entitlements as stipulated in the Agreement.

The balance of the un-expired period of the Agreement is from 7th March, 1995 to 28th February, 1997. That is a period of one year eleven months three weeks.

Damages under various Heads of Claims for one year eleven months three weeks.

1. Salary. (See Clause 5).

K2,400.00 per fortnight or K1,200.00 per week

1 year 11 months 3 weeks, in terms of weeks is 52 weeks + 44 weeks + 3 weeks = 99 weeks.

K1, 200.00 x 99 = K118,800.00

2. Housing. (See Clause 5.4).
   

K550.00 per week

K550.00 x 99 = K54,450.00

3. Public Utility. (See Clause 5.5).
   

K2,000.00 per annum

1 year = K2,000.00 (K166.67 per month)

11 months x K166.67 = K1,833.37

per week = K166.67:- 4 = K41.67

3 weeks x K41.67 = K125.01

Total – K2,000.00 + K1,833.37 + K125.01.

= K3, 958.38

4. Telephone. (See Clause 5.5).
   

K2,000.00 per annum

Same formula applied here as for Public Utility.

K3, 958.38

5. Domestic Service Allowance. (See Clause 5.5).
   

K3,000.00 per annum

1 year = K3,000.00 (K250.00 per month)

or (K62.50 per week)

11 months x K250.00 = K2,750.00

3 weeks x K62.50 = K 187.50

Total – K3,000.00 + K2,750.00 + K187.50 = K5,937.50

6. Settlement Out Allowance. (See Clause 5.9).
   

The plaintiff in not entitled to claim this allowance because he is a naturalized citizen.

7. Entertainment Allowance. (See Clause 5.6).
   

K5,000.00 per annum.

1 year = K5, 000.00 or (K416.67 per month)

or (K104.17 per week).

11 months x K416.67 = K4,583.37

3 weeks x K104.17 = K312.51

Total – K5,000.00 + K4,583.37 + K312.51 = K9,895.88

8. Motor Vehicle Allowance (See Clause 5.7).

The plaintiff is not entitled to claim anything under this head because he was given the vehicle he was using. The vehicle was registered under his name. The defendant raised this in its submissions and the plaintiff did not deny the claim by the defendant.

9. Medical Insurance. (See Clause 5.8.).

This claim can only be made if the plaintiff had paid medical bills and the claim is only by re-imbursement of the monies paid by him. There is no evidence that he had paid for medical bills.

The reality sometimes is that the beneficiaries under medical schemes do not incur any claims in a given period. It follows that the plaintiff is not entitled to claim anything under this head.

10. Airfares. (See Clause 4).
    

The plaintiff is not entitled to claim anything under this head on the basis that he became a naturalized citizen on 24th June, 1992. Furthermore, even if the plaintiff was entitled to be granted leave under Clause 4.1, he could only have leave with prior agreement with the Secretary. The Secretary might not have agreed for him to take leave in the period for which he is claiming.

The plaintiff claims for return airfares for him, his wife and children but as I said, he was a naturalized citizen and therefore he had no basis to make this claim.

Gratuity (See Clause 5.3)

The plaintiff claims 40% gratuity of the salary for every six months of completed service.

The defendant has argued that this claim cannot be granted because it is against the Income Tax Act, 1959, which provides that gratuity can only be 25% of the fully taxed salary or wages.

Sections 65CB and 65 CD of the Income Tax Act, are the relevant provisions.

Sec 65 CB is the interpretation provision and it provides, inter alia:-

"gratuity" means an amount set aside under a contract or agreement for employment which would, but for the provision of this Division, have been payable on termination of that employment, to the extent that it does not exceed 25% of the fully taxed salary or wages paid or payable.

Section 65 CD is headed – Gratuity under new or existing contracts.

Sub-section (2) provides:-

(2) To the extent a payment is made purporting to be in the nature of a gratuity which exceeds 25% of the fully taxed salary or wages derived during the three year employment period, the excess shall be deemed to be salary or wages paid in respect of a period of 26 fortnights preceding (1) the date on which the payment was made.

It is clear from s.65CB, that gratuity must not exceed 25% of the fully taxed salary or wages paid or payable.

Section 65CD (2) says, that where gratuity which has been paid exceeded 25%, then the excess is to be treated as salary or wages.

The two sections in my view make it clear that gratuity must be 25%.

In this case, I am deciding on the gratuity which is yet to be paid, therefore the gratuity has to be at 25%. Had the gratuity been paid already, then by virtue of s.65CD (2), the amount paid in excess of 25% of the fully taxed salary or wages would be treated as salary or wages. That does not apply here because, the gratuity has not been paid yet. I must therefore apply 25% in determining the amount of gratuity for the plaintiff as provided under s.65CB.

The balance of the Agreement period as I said is one year eleven months three weeks. But under Cause 5.3, in determining gratuity, it has to be for every six months of completed service. I can therefore allow only one year six months or eighteen months as the deemed three consecutive six months of completed service. I cannot allow for the rest of the period, because it is less than six months. Therefore 25% of one year salary which is K62,400.00 is K15,600.00.

Gratuity for the remaining six months is K7,800.00.

Total amount to be paid in gratuity to the plaintiff therefore is K23,400.00.

Summary of entitlements due and payable to the plaintiff for the balance of the contract period, which is one year eleven months three weeks, pursuant to Clause 11.5 of the Agreement is as follows:-

1. Salary - K118,800.00
2. Housing - K 54,450.00
3. Public Utility - K 3,958.38
4. Telephone - K 3,958.38
5. Domestic Service - K 5,937.50
6. Entertainment - K 9,895.88
7. Gratuity - K 23,400.00

TOTAL = K220,400.14

Interest.

I will award interest at 4% per annum from the date of the writ, which is 5th March 1997 to the date of judgment 5th October, 2004. That is a period of seven years seven months.

Therefore interest for seven years is 4% of K220,440.14 per annum which is K8,817.61 x 7 = K61, 723.27

Interest for seven months is K8,817.61:- 12 x 7, which is K5,143.60.

The total interest is K66,866.87.

The total amount due to the plaintiff in damages and interest for the balance of the contract period is K220,440.14 + K66, 866.87, which is K287,307.01.

It was submitted by the defendant that, the plaintiff was paid K30,000.00 in termination pay. This is not disputed by the plaintiff. I therefore subtract this amount from K287,307.01, and the balance is K257,307.01.

The defendant has submitted that the amount awarded should be less the tax. I do not consider it my task to tax the amount awarded.

It is however an appropriate matter which the defendant can ensure is done, pursuant to Clause 6 of the Agreement.

Therefore the total amount due and payable to the plaintiff in damages and interest is K257,307.01.

The defendant will pay the plaintiff’s costs.

________________________________________________________
Lawyers for the plaintiff : In Person.
Lawyers for the defendant : Solicitor General.